Retail options trading boom a burden for some investing firms -study

Discussion in 'Options' started by ajacobson, Jan 13, 2022.

  1. ajacobson


    Retail options trading boom a burden for some investing firms -study
    By Options Clearing Corp data showed.

    The number of individual options account holders grew to the highest levels ever last year, and the amount of smaller trades, which are indicative of retail trades, increased to significant levels of market share, said Shane Swanson, senior market structure and technology analyst at Coalition Greenwich.

    "Whether driven by the meme stock phenomenon, zero-commission trading or simply by retail investors looking to get heightened exposure to the market, retail trading in options grew by leaps and bounds in 2021," said Swanson, who led the study.

    But the increase in smaller trade sizes affected the ability of many investing firms to achieve their trading objectives, the study said.

    Out of 24 investing firms interviewed by Coalition Greenwich between June and September, 13% said the growth of retail trading had a "fair amount of negative impact" on their trading, while another 42% said it had "some negative impact."

    That was because one of the main objectives of investment firms is to execute their trading deals with minimal market impact, and when a large amount of contra-side flow is in small and single lots, that makes executing larger institutional-sized orders more challenging, Swanson said.

    "The longer an order has to work, the more likely it is to have market impact," he said.
    dealmaker and Nobert like this.
  2. Handle123


    I am not concerned of reasons of others, but liquidated 95% of stock positions on recent new highs and transferred all those funds for doing credit spreads. Have developed 3 new "toys" systems and kept running out of funds to add. Last year shut down 6 intraday automated systems cause of very low Ave per trade, transferred to very long term commodities. Still have 3 automated scalping and 1 system waiting for programming, if 1500 ES drop occurs, other intraday systems be turned back on.

    I find option trading to be easier than outrights by doing directional. Dividends on stocks are too low to keep.
  3. This explanation sounds a little bit odd to me. Are the big firms complaining their order get executed in more chunks rather than a single one, leading to higher commissions (but also to better fill prices)? Moreover, if the retail is really providing liquidity, the market impact of big sized orders should be less not more. Cannot understand. Any kind sould willing to explain that to me?
    qlai likes this.
  4. qlai


    Yeah, makes no sense to me either.
  5. qlai


    Sorry, you are saying it’s easier to trade directionally using options? Are you using credit spreads to trade directionally? Is that automated?
    easymon1 likes this.
  6. newwurldmn


    It can change how liquidity interacts I guess. Not worse or better but different and for an old industry different is bad.
  7. qlai


    Maybe all the options flow alert services are making it hard to enter large positions discretely?
    arturo100 likes this.
  8. This sounds more reasonable to me. Though the SEC should be watching anyhow.
  9. Ayn Rand

    Ayn Rand

    I doubt very small lots have to do with retail traders.

    I trade a lot of options.

    The example below happens often

    Here is a recent fill all within :00:02

    This was a filled 40 contract sell order


    It is some kind of bot algo at work. Happens all the time.
  10. Overnight


    It's the Hungry Hippos thing on the ladder I reckon'. I do this often on the thinner ladders of forward futures. I "tease" the ladder, and someone usually grabs my order above/below previous ask/bid.

    So you may be seeing it in real-time at a much faster pace, in a more liquid instrument.

    #10     Jan 14, 2022